IPR and Medicines 16: Wikileaks and the Cheaper Medicines Law

In a news report today in the Philippine Star, author Sheila Crisostomo wrote,

http://www.philstar.com/Article.aspx?articleId=745753&publicationSubCategoryId=63

WikiLeaks: US lobbied vs cheaper medicine law in Phl By Sheila Crisostomo (The Philippine Star) Updated November 08, 2011 12:00 AM Comments (11)

MANILA, Philippines - The online whistle-blower WikiLeaks reported that the United States had lobbied against the Cheaper Medicine Act in the Philippines after American stakeholders expressed concern about the possible changes in the country’s pharmaceutical policies.

WikiLeaks claimed that the US lobbied with former senator and now Transportation Secretary Manuel Roxas II and Quirino Rep. Junie Cua who sponsored the law, Republic Act 9502.

A press statement revealed that on Oct. 27, 2005 then US Ambassador Kristie Kenny said that US Intellectual Property (IP) Rights holders “were concerned about Roxas’ move to amend the IP Code with respect to patents and parallel imports for pharmaceuticals.”

Kenny supposedly said that Roxas’ bill was “troubling US pharmaceutical rights holders trying to retain their market share and profitability in the Philippines.”

“Roxas’ proposal would change the IP Code so that the period of patent protection begins after the product has been introduced anywhere in the world rather than just in the Philippines,” the statement quoted Kenny sa saying....

Ms. Crisostomo did not cite her source/s but it should have come from the various wikileaks and cablegate, gathered by James Love of the Knowledge Ecology International,


http://keionline.org/node/1225
Wikileaks cables on the US opposition to Philippines legislation on affordable medicines

Submitted by James Love on 3. September 2011 - 7:44

From KEI staff review of Wikileaks cables (http://keionline.org/wikileaks)

From September 19, 2005 to January 15, 2010, the US Department of State sent dozens of cables from Manila reporting on disputes in the Philippines regarding IPR and the pricing of pharmaceutical drugs. Much of the U.S. advocacy in the Philippines was done in close cooperation with Pfizer.

One disturbing feature of the cables is the constant lying about the IPR norms in the TRIPS agreement. For example, the Department of State often claims that TRIPS requires patents on new uses of old drugs or data exclusivity (it clearly does not). The US Department of State also implies in several cables that parallel trade (importing the patent owners' own product that was placed in the market in another country), is inconsistent with TRIPS....

The other reference to Ms. Crisostomo's article, especially her last paragraph, 

The statement showed that Kenny had said the Philippine government must tread carefully and should not ignore the multinational company’s warning that it could withdraw many drugs from the Philippine market if price controls are put into effect.

is from here, http://www.cablegatesearch.net/cable.php?id=09MANILA468

Cable reference id: #09MANILA468

Reference id	aka Wikileaks id #195307  ?
Subject	Philippines Closer To Drug Price Controls
Origin	Embassy Manila (Philippines)
Cable time	Thu, 5 Mar 2009 05:50 UTC

...

¶5. (SBU) In addition, the Association asserts that the Health
Department has been pressuring companies to sell drugs in small packages that can retail for 100 pesos, or around USD 2, offering to exempt such drugs from price controls. In many cases, this can amount to a handful of tablets needed for one cycle of a course of doses. Representatives of Pfizer warned us that for certain antibiotics, small doses can promote antibiotic-resistant bacteria, and claimed that it is being pressed to sell antibiotics that currently cost over 1000 pesos for the 100-peso fixed price. Pfizer said that if these price controls are put into effect, it will withdraw many drugs from the Philippine market.

Here now are my commentaries to the above articles.

1. About her news story, 'US embassy lobbied vs CML", I think it is obvious that ALL embassies by governments to other countries are lobby groups for the political, economic, business and other interests of those governments. For instance, the Philippine embassy in the Kingdom of  Saudi Arabia (KSA) is there to lobby Philippine interests on (a) secure oil imports supply, (b) secure more Filipino workers' placement in KSA, (c) lobby the Saudi government not to proceed with beheading or other capital punishment against Filipino OFWs convicted of some crimes in the kingdom, among others.

The same way, the US embassy -- and UK embassy, Swiss embassy, etc. -- would have talked to the authors of the CML then to protect the IPR of American, British, Swiss, other foreign innovator pharma companies here who will be affected by the major amendments to the Intellectual Property Code (IPC) re compulsory licensing (CL), special CL, exhaustion of rights (aka parallel importation), Bolar principle (aka early working), other IPR-related policies.  

2. On the proposal by the DOH to "chop-chop" expensive anti-biotics into small dosages so these can be sold at P100 a piece, I think it's rather weird for the DOH to do or say that. Anti-biotic resistance (ABR) is a real and existing health risk. Once a patient develops ABR, the disease or infection will not be healed; or it can be temporarily cured, to resurface later as a new, more powerful disease, that will require more expensive treatment. The patient will be the end-loser.

One alternative to expensive vaccines and anti-biotics is to drop or remove government taxes (3-5% import tax + 12% VAT + local government taxes) on medicines. Another is to encourage the entry of more innovator companies that can supply cheaper alternative drugs (competition among innovator companies), or scout for existing cheaper generic alternatives.


Meanwhile, here are some slides presented by Reiner Gloor, Executive Director of the Pharmaceutical and Healthcare Association of the Philippines (PHAP) during the 2nd Generics Summit, September 7-8, 2011, Richmonde Hotel, Eastwood, Quezon City. The event was sponsored by the Department of Health. PHAP is the federation of mostly multinational pharma companies and some big drugstore chains. Reiner was showing the value and risks of drug innovation.


Up to 10,000 molecules and compound of molecules are invented and on average, only one will get the nod of the FDA. 

Out of the 20 years patent life of a drug molecule, about 9 to 10 years consumed by regulatory approval process to test on efficacy and safety of those new drugs. The commercial period to earn for the innovator companies is only 10 to 11 years, then the patent will expire. 


Then various generic manufacturers, and the innovator companies themselves compete with each other to produce the low price, effective drugs and treatment. And this is where the public maximizes the benefits of drug innovation.

Reiner also showed one slide on the rising cost of developing one new drug. As of 2005, their industry average cost was $1.3 billion already. It should be higher at this time.


I remember a debate a few years ago with one friend in the health NGOs, she said that they do not believe that the cost of developing just one new drug would be $1 billion or more. She quoted one estimate saying it's only around $160 million. If this is so, then the number of innovator companies worldwide should drastically expand. Why be contented with being a generic manufacturer, waiting for the patent of a successful drug to expire, or spend big money to lobby governments and legislators to make it easier to impose compulsory licensing (CL) and special CL, when they can be innovator themselves? Yes, why spend big money on politics and politicians, when you can spend it on drug innovation instead?

----------


See also:

1. Drug price control 17: Wikileaks on the planned Pfizer drugs withrawal, Sept. 22, 2011.
2. Drug price control 18: Wikileaks and former US Amb. Kenney on price control, Sept. 28, 2011
3. IPR and Medicines 15: New Vaccines and Public Health, November 05, 2011

Drug price control 18: Wikileaks and former US Amb. Kenney on price control

(This is my article yesterday in the lobbyist.biz, with original title, Wikileaks on Drug Price Control)

Wikileaks is becoming more popular as it becomes more controversial. Leaking to the public what are supposedly secret and classified documents of the US government and its embassies abroad is yummy to the public.

Some of the wikileaks documents that are freely available on the web now are the supposed cable reports by former US Ambassador to the Philippines, Kristie Kenney, on the drug price control policy that has adversely affected many multinational companies, mostly American and Europeans.

One report is this, Philippines Imposes Pharma-ceutical Drug Price Controls created September 11, 2009. I am posting two of the seven paragraphs of the report here and supply some data and my own observations.

Local Drug Firms Also Not in Favor

5. Contacts at domestic generics pharmaceutical firms and drug distributors profess that the majority of local drug companies are against the new pricing regime. These controls have significantly reduced their cost advantage over brand-name medicines, and some claim they will lose market share as former generics consumers choose to pay the smaller additional cost to purchase cheaper brand name pharmaceuticals.

As a member of the DOH Advisory Council on Price Regulation (now called the DOH Advisory Council on Healthcare), I can confirm that this is true. I was there in several meetings from June to 2009 onwards of the Council, and the President of the Philippine Chamber of Pharmaceutical Industry (PCPI) and a few other federation leaders were very explicit in opposing the price control policy. Why?

Consider drugs A, B and C, same molecule and generic category, from companies 1 (multinational), 2 and 3 (locals) respectively. Drug A is branded innovator drug while B and C are branded generic drugs by the locals. Before price control, A’s price is P30 per tablet, B’s is P18 and C’s is P13. At this price range, they all serve specific markets and buyers, they all make sufficient profit, and they can comfortably co-exist and compete with each other.

After price control, A’s price becomes P15. B’s price is now the “expensive drug” and C’s price is not that far from A. To keep up with competition and retain their buyers, prices of B and C must significantly go down too, say to P10 and P6 respectively. Everyone is now adversely affected, their profitability is significantly reduced, if not eroded. What if C’s price cannot be brought down to P6-P7 without incurring losses? Then it will be forced to quit the market, temporarily or permanently (and company 3 must lay off some personnel if they cannot introduce new other products) while the number of drugs available to the consumers has declined.

Below is data from Watsons’ Drugstore. I am very thankful to their Director for Health Business Unit for giving me the go signal to share this to the public.

With a few exceptions, growth rate in both value and volume of the price-controlled innovator drugs by the multinational pharma has significantly increased to 22-23 percent this year over the previous year. And sales of those drugs 2010 were higher than their 2009. Which means one important thing: people, at least for the Watsons’ customers, have shifted to the innovator drugs and most likely, away from the generic drugs in the same molecular and generic category.

The Generics Act of 1988 was enacted precisely to promote the local generics. The price control policy of 2009 was enacted precisely – though implicitly – to promote the innovator drugs. These policies are clearly contradictory and both policies are implemented at the same time by the DOH.

Back to the wikileaks report. There are some points in the final paragraph, the supposed commentary of the US Ambassador, that need clarification.

Comment

7. Although the government conducted public consultations on the implementation of this law, industry officials have a point about the lack of thorough scientific or economic studies underlying the government's actions to halve the price of these medicines. On the other hand, there is intense pressure for the current government to reduce medicine prices as the election season is nearing (reftel A), and calls for affordable medicines increase from civil society groups (reftel B). Prescription medication prices in the Philippines are the second highest in Asia (next to Japan), in a country where about a third of the population subsists below the official poverty line. In this instance, some multinational companies failed to recognize that cheaper medicine for the masses is an emotional and political issue. When price controls were placed on several of their most profitable products, it affected some companies' whole business model. Investment, and therefore, job creation by research pharmaceutical companies in the Philippines, will continue to be inhibited by such government market interventions. Furthermore, Philippine civil society's and government's success in lowering prices might encourage further interventions.

KENNEY

It is true that the DOH Advisory Council has met several times prior to the actual price control policy in August 16, 2009, especially on June 5, 2009, on whether a price control policy should proceed or not. There was also no list of drugs that were “candidates” for price control. Weeks before that, there was sustained, intensive and heavy pressure by then former Senator, former Presidential aspirant, Mar Roxas, to proceed with drug price control.

But to the big surprise of the members of the Council, by June 8, 2009, former DOH Secretary Francisco Duque and former Sen. Roxas already have the list of drugs to be put under mandatory 50 percent discount and presented to media. The criteria for selecting those 22 molecules were also illegal – they cannot be found in the Cheaper Medicines Law (RA 9502) nor in its implementing rules and regulations (IRR). The new four criteria were jointly designed by the IMS and DOH. There was also no scientific or economic basis for imposing a flat 50 percent discount – not 25 or 38 or 70 percent on specific drugs.

The supposed commentary above mentioned the high prices of drugs in the country. To a certain extent, true. But it failed to mention that government taxes on medicines – 5% import tax + 12% VAT + local government taxes – also contribute to high medicine prices here.

It is good that wikileaks has released these classified US government documents publicly. I am not sure though if these are indeed 100 percent correct, or some sentences and paragraphs were added or omitted. Nonetheless, my comments and data above stand, whether the stated document is correct or altered.
-------

See also Part 17: Wikileaks on the planned Pfizer drugs withrawal, September 22, 2011.

Drug price control 17: Wikileaks on the planned Pfizer drugs withrawal

Where there is political and economic coercion by governments, there is also product and service non-availability or withrawal by the affected players and companies. The stronger the coercion, the plentier the amount of goods and services that are non-available in the market.

A clear example are the highly-repressive governments of North Korea, Myanmar, Venezuela, Congo and many other African countries. Private companies, especially multinationals, would hardly consider setting up businesses in those countries as the political threat of price control, product confiscation, raids and other forms of harassment are very clear and real. Contrast that with free trade economies like Hong Kong (unilateral free trade policy actually), where almost anything and everything is available from so many countries and territories.

While searching google on "drug pricing", I saw this article from InPharm, Philippines pricing controls: Pfizer 'considered taking drugs off the market', dated September 2, 2011. It said,

Pfizer considered withdrawing some of its products from the Philippines rather than face planned pricing controls, according to a US diplomatic cable released by WikiLeaks.

The March 2009 cable was sent during intense debate about drug pricing in the country as the Philippines’ Department of Health drew up a list of 25 prescription medicines that could have been affected....

The article referred to a Wikileaks cable, PHILIPPINES CLOSER TO DRUG PRICE CONTROLS, so I visited the site.

It's about the supposed cable of then US Ambassador to the Philippines, Kristie Kenney (I follow her on twitter, and just 3 days ago, she mentioned me and replied to my tweet on the subject of Rule of Law :-)) to the US Secretary of State, dated March 5, 2009. The cable said,

1. Summary. The Philippine Department of Health has listed 34 prescription medications that will be subjected to price controls under the Cheaper Medicines Act (reftel) enacted last year. The main impetus for the rapid imposition of price controls came from advocacy groups and non-governmental organizations. Local representatives of international drug companies participated in consultations on maximum retail prices, but warn that some of the controlled prices are lower than the costs of making the drugs, which could force them to withdraw many drugs from the Philippine market. End summary...

4. We met with several directors of the Pharmaceutical and Health Association of the Philippines, the trade association of foreign drug companies, who noted that the main impetus for the rapid imposition of price controls came from advocacy groups and non-governmental organizations. While the Association acknowledged that it has been invited to consult with the Health Department, it also noted that some member companies had not participated. The Association is also concerned that the final list of drugs subject to price control may contain more than 25 medications.

5. In addition, the Association asserts that the Health Department has been pressuring companies to sell drugs in small packages that can retail for 100 pesos, or around USD 2, offering to
exempt such drugs from price controls. In many cases, this can amount to a handful of tablets needed for one cycle of a course of doses. Representatives of Pfizer warned us that for certain
antibiotics, small doses can promote antibiotic-resistant bacteria, and claimed that it is being pressed to sell antibiotics that currently cost over 1000 pesos for the 100-peso fixed price. Pfizer said that if these price controls are put into effect, it will withdraw many drugs from the Philippine market.

Comment
-------

6. The Philippine press has recently featured stories noting that drug prices have not fallen since the Cheaper Medicines Act came into effect, creating pressure for more immediate action from the government. However, the Philippine government must tread carefully and should not ignore Pfizer's warning that it could withdraw many drugs from the Philippine market if price controls are put into effect. Pfizer's withdrawal of medicines from Thailand following laws on compulsory licensing clearly demonstrates the risks. Post will continue to remind Health Department officials that expecting pharmaceutical companies to sell products for less than it costs to produce them could prove counterproductive.

Wow. I have read other Wikileaks cable release supposedly also from then US Ambassador Kenney about her opinion about now PNoy Aquino when the latter was still a Senator. There were questions about the validity and authenticity of those "cable leaks." So I will also not take the above cable leak as 100 percent true.

But assuming for the same of argument, that the above communication was indeed true, I will not be surprised of the wording of the former Ambassador. Pfizer as (or any other) US-based company that pays plenty of taxes to the US government, would naturally seek the assistance of its own government to talk to the host (Philippine) government when the policy of the latter will adversely affect its business. The same way that some Philippine-based company/ies sought the assistance of Philippine Congress and the Executive branch in crafting the Cheaper Medicines Law (RA 9502) and amended the Intellectual Property Code so that certain patent protection of innovator drugs by some multinational pharma companies can possibly be tweaked and dishonored via provisions on compulsory licensing, special CL, early working, exhaustion of rights and government use.

While I was a member of the DOH Advisory Council on Price Regulation (now it's called the DOH Advisory Council on Healthcare), the DOH body that was referred to by Ambassador Kenney, I was not aware of the first 3 Council meetings and consultations from January to April 2009. And that was the period stated in the above cable.

I started attending only on its 4th meeting in early June 2009. I have a long discussion of what transpired in the 4th and 5th meetings of the Council on June 2009, see my book, Health Choices and Responsibilities (published January 2011, 233 pages) and turn to pages 2-7, also pages 72-73.

Anyway, these issues are now water under the bridge. Pfizer did not withraw its innovator drugs that were hit by price control (Norvasc (amlodipine), Lipitor (atorvastatin) and Azithromycin (anti-biotic), what else) and opted to absorb the losses and resorted to deep cost-cutting measures including laying off a few hundred employees.

But what will not go away is the damage done by government intervention -- particularly the Philippine Senate, the Committee then headed by former Sen. Mar Roxas, the DOH then headed by former Sec. Francisco Duque, and the former President Gloria Macapagal Arroyo -- in drug pricing. As I wrote here in the past, price control is price dictatorship.

This damage to the business environment, at least in the health sector as far as foreign investment is concerned, is long-term. And the fact that the price control policy is still not lifted until now even if all the 3 main political personalities involved are no longer in their offices, makes the damage last longer.
-------

See also Part 16: More on Cong. Biron's Bill, September 01, 2011, and
Part 12: Blog posts on page 1 of Google, Yahoo and Bing, August 14, 2011